Draft Governance, Social and Financial Performance Standards for Accreditation of Microfinance NGOs

November 29, 2017 MICROFINANCE NGO REGULATORY COUNCIL TO : All Microfinance Non-Government Organizations SUBJECT : Draft Governance, Social and Financial Performance Standards for Accreditation of Microfinance NGOs NOTICE This has reference to the formulation of the Standards for Accreditation of Microfinance NGOs pursuant to the implementation of Republic Act No. 10693 otherwise known as "The Microfinance NGOs Act." The Draft Governance, Social and Financial Performance Standards with the Scorecard are attached herewith for your comments. Kindly submit your comments to [emailprotected] , [emailprotected] and norastandoc(@yahoo.com not later than 29 December 2017 . Issued on November 29, 2017. ATTACHMENT Draft Performance Standards for Microfinance NGOs 1. Overview Under Section 10 and 11 of RA 10693, the Microfinance NGO Regulatory Council (MNRC) is directed to establish an accreditation system for microfinance NGOs. Qualified MF-NGOs shall be issued Certificates of Accreditation that shall be used to avail of the incentives provided for under RA 10693. According to Sections 14-16 of RA 10693, the accreditation criteria shall include sound and measurable standards of financial performance, social performance and governance. a) Financial standards shall focus on the following: Portfolio quality, efficiency, sustainability and outreach (Section 14). b) Social standards should focus on: Social objectives, governance and accountability mechanisms, transparency, product design, services and delivery channels and ethical treatment of clients (Section 15). c) Governance standards should include the following: Fairness, management responsibility, respect for rights, corporate integrity, loyalty compliance with regulations and transparency (Section 16). The financial, social and governance indicators and standards that shall be used to accredit MF-NGOs are provided for below. 1. n Institutional Viability Criteria All MF-NGOs are required to comply with the following basic minimum requirements for accreditation: a. Presence of program objective/s to reach the poor; b. At least 500 active microfinance clients for group lending and at least 200 for individual lending. No. of active microfinance clients should be disaggregated by sex; c. At least three-year in microfinance operations; 1 d. Presence of a functioning and effective Management Information System (MIS) for regular monitoring of microfinance operations as evidenced by the existence of a loan tracking system and the timely generation of basic financial data and aging reports using Portfolio at Risk (PAR); e. Manual of operations or product manual; and f. At least 2 full time account officers for microfinance operations; g. Ratio of total loan portfolio to total microsavings collected from clients should be greater than 1 at any point in time. 2. Financial Performance Standards The Financial Performance Standards shall be used to assess the financial performance of MF-NGOs. The Standards are comprised of indicators in the following areas: P ortfolio Quality (40%), E fficiency (20%), S ustainability (25%) and O utreach (15%) (PESO). Following are the indicators and standards that shall be used: Indicator Definition/Ratio Standard Weight Score Equivalent Points PORTFOLIO QUALITY 40 Portfolio at Risk Balance of loans with at least one-day payment Total Loans Outstanding PAR-1 is 5% 20 5% or less >5% to 10% >10% to 15% >15% to 20% above 20% 20 15 10 5 0 Loan Loss Reserve Ratio Total Allowance Provided Total Required Allowance Required Allowance: Current loans 1% PAR 1 to 30 2% PAR 31 to 60 20% PAR 61 to 90 50% PAR 91 & above and/or Loans restructured 100% 20 100% 70% to <100% 50% to <70% 30% to <50% below 30% 20 15 10 5 0 EFFICIENCY 20 Operating Expense Ratio Operating Costs 2 /Average Gross Loan Portfolio 30% and below 10 0 to 30% >30% to 40% >40% to 50% above 50% 10 6 4 0 Loan Officer Productivity No. of Active Borrowers No. of Account Officers Group loans - to 200 Individual loans - to 100 10 For group loans: 200 and above 150 to 199 100 to 149 below 100 For individual loans: 100 and above 50 to 99 30 to 49 below 30 Note: If an MFI uses only 1 methodology, an MFI gets an additional 5 points 5 3 1 0 5 3 1 0 SUSTAINABILITY 25 Operational Self-Sufficiency Interest Income from Loans + Service Fees+ Filing Fees + Fines, Penalties, Surcharges Financing Costs + Administrative Costs (Direct & Indirect costs) 120% 5 120% and above 115% to <120% 110% to <115% 105% to <110% 100% to <105% below 100% 5 4 3 2 1 0 Financial Self-sufficiency Operating Revenue Financial Expense + Loan Loss Provision Expense + Adjusted Expenses 3 100% 5 100% and above 95% to <100% 90% to <95% 85% to <90% 80% to <85% below 80% 5 4 3 2 1 0 Loan Portfolio Profitability Net Operating Income Average Net MF Loan Portfolio Greater than inflation rate during the period 5 Greater than inflation rate Equal to inflation rate Less than inflation rate 5 3 0 Return on Assets Net Operating Income - Taxes Average Assets 5% 5 5% and above 0 to <5% below 0 5 3 0 Return on Equity Net Operating Income - Taxes Average Equity 10% 5 10% and above 5 to <10% 1 to <5% 0 to <1% below 0 5 4 3 2 0 OUTREACH 15 Growth in Number of Active MF Clients Ending No. of Active MF Clients 4 - Beginning No. of Active MF Clients Beginning No. of Active MF Clients Increasing 5 5% or higher 0 to 5% 3 below 0 5 3 0 Growth in MF Loan Portfolio Ending MF Loans Outstanding - Beginning MF Loans Outstanding Beginning MF Loans Outstanding Increasing 5 5% or higher 0 to 5% below 0 5 3 0 Depth of Outreach Total Loans Outstanding Total Number of Borrowers GNP per Capita 20% or below 5 20 >20-100 >100-150 >150-200 >200-300 >300 5 4 3 2 1 0 TOTAL 100 Rating (%) (raw score/100) 3. Social Performance Standards Using selected indicators from the Universal Standards for Social Performance Management (SPM), the MF-NGO shall be evaluated in the following areas: social goals and objectives, governance and accountability mechanisms, transparency, client protection, product design, services and delivery channels and the ethical treatment of clients. The following indicators and standards shall be used to evaluate the social performance of MF-NGOs: Indicator YES (1 pt) NO (0 pt) Means of Verification DEFINE AND MONITOR SOCIAL GOALS 1. The MFI has a vision/mission statement that clearly states the low-income people as target clientele. Vision/Mission Statement MF-NGO Strategy and Business Plan 2. The MFI circulates the vision/mission to both management and staff. Interview with the Management and staff 3. The MFI has a strategy that clearly defines the specific characteristics of the target clientele. MF-NGO Strategy and Business Plan 4. The MFI has identified specific indicators that measures its progress towards attaining its social goals, including gender and environment. MF-NGO Strategy and Business Plan ENSURE BOARD, MANAGEMENT AND EMPLOYEE COMMITMENT TO THE SOCIAL GOALS 5. The members of the board, are given orientation on the social goals of the MFI. Minutes of the Board Meeting 6. The management is given orientation on the social goals of the MFI. Interview with Management 7. The employees are given continuing orientation on the social goals of the MFI. Interview with employees and staff Training plan for employees and staff 8. The MFI adopts a Code of Ethics for employees that guide them to actively participate in the realization of the organization's Vision, Mission and Social, Financial and Governance Goals. Code of Ethics should include among others upholding its stand against corruption, unethical behavior, poverty and inequality. 9. The board uses social performance data to provide strategic direction considering both social and financial goals. Minutes of Board Meetings DESIGN PRODUCTS, SERVICES AND DELIVERY CHANNELS THAT MEET THE CLIENT'S NEEDS AND PREFERENCES 10. The MFI conducts market research before introducing or modifying products and services. Market Research Reports 11. The MFI conducts client satisfaction surveys and exit surveys. Client Satisfaction Surveys Client Exit Surveys 12. The MFI uses the result of the client satisfaction and exit surveys in designing/improving its products and services. Product Manual Credit Policy ABIDE BY CLIENT PROTECTION PRINCIPLES Prevention of over indebtedness 13 . To prevent over indebtedness among clients, MFI adopts a loan policy that defines the maximum percentage of a borrower's disposable income that can be applied to debt service, including debt from the MFI and other lenders. This amount is used to determine the maximum loan amount and terms. Credit Policy and credit appraisal results 14. The MFI submits and access credit data of all borrowers to and from the CIC and/or MIDAS. Interview with Management and staff 15. The MFI conduct repayment capacity analysis of each clientele prior to loan approval. Credit policy and credit evaluation procedures Transparency 16. Policy and documented processes on the transparency in product terms, conditions and pricing are in place. Credit policy and loan contract 17. The MFI discloses to clients all relevant costs related to the financial products and services it offers. Loan contract 18. The MFI gives clients adequate time to review the terms and conditions of financial products, ask questions and receive additional information prior to signing of contracts. Interview with Management and loan officers Credit policy 19. The MFI complies with the Truth in Lending Act by clearly stating the amount and method of interest rate computation in the disclosure statement. The Truth in Lending Act is prominently displayed and posted in the premises of the MF-NGO. Loan Contract Fair and respectful treatment of clients 20 . The MFI has a code of conduct that promotes the fair and respectful treatment of clients. MF-NGO Code of Conduct 21. A policy that clearly defines appropriate and inappropriate collection practices by both staff and collection agents is in place and enforced. Loan Collection Policy Training Manual for Account Officers 22. The MFI trains its staff and third party collection agents on debt collection practices and loan recovery procedures. Loan Collection Policy Training Manual for Account Officers Mechanism for Complaint Resolution 23 . The MFI has an effective mechanism in place to receive and resolve complaints from clients. Complaints and dispute resolution policy 24. The MFI informs its clients about their rights to complain and how to submit a complain. Complaints and dispute resolution procedures Privacy of Client Data 25 . Client data (personal, transactional and financial) is kept secure and confidential through an established policy and documented processes. Privacy policy in Human Resource Manual 26. Clients are informed about data privacy and the need for consent prior to the use of client-related data and information. Loan Contract consent form TREAT EMPLOYEES RESPONSIBLY 27. A written human resource policy compliant with the Labor Code, Gender-related and Persons with disability laws is in place and is made available to all employees. Interview with Staff HR Manual 28. The MFI complies with the minimum wage law. Salary and plantilla reports 29. The MFI communicates to its employees the terms of their employment. Employees' contract of employment 30. The MFI provides continuous training to its staff and employees. HR policy Training Manuals and materials TOTAL NO. OF POINTs (Raw Score) 4. Good Governance Checklist Governance of MF-NGOs should follow the key principles of Good Governance on fairness, responsibility, accountability and transparency. These principles are translated into questions in the checklist below. The checklist shall be used to assess an MF-NGO's compliance to Good Governance standards. A score of 1 is given for a YES answer and a score of 0 for a no answer. There is no score on partial compliance. For purposes of this checklist, MF-NGOs are classified as follows: i) Small when the total MF loan portfolio is PhP600 million and below ii) Large when the total MF loan portfolio is more than PhP600 million Mandatory standards for all regardless of size are identified in the checklist below. Indicators that are applicable only to large MF-NGOs are also indicated in the performance. GOVERNANCE GOOD PRACTICES REQUIRED FOR YES/NO Yes-1 pt No-0 pt **no partial compliance SOURCE OF INFORMATION THE BOARD'S GOVERNANCE RESPONSIBILITIES ESTABLISHING A COMPETENT BOARD Principle 1: The Microfinance NGO should be headed by a competent, working board to foster the long-term success of the organization, and to sustain its consistent growth and operation in a manner aligned with its Vision, Mission and Social, Financial and Governance Goals and the long-term best interests of its members, clients, and other stakeholders. 1.1 (a) Is the organization's board composed of trustees with a collective working knowledge, experience or expertise that is relevant to the Microfinance NGO and its Vision, Mission and Social, Financial and Governance Goals (VMSFGG)? Mandatory for all Notice to Members' meeting (Should include the nominees for trustees and their qualifications) 1.1 (b) Does the Board ensure that it has an appropriate mix of competence, expertise and concern for the poor and the marginalized to enable it to fulfill its roles, responsibilities and social advocacies and respond to the needs of the organization based on its stated purpose or mission? Mandatory for all 1.2 (a) Is the Board composed of a majority of non-executive trustees who possess the necessary qualifications to effectively participate and help secure objective, independent judgment on the Microfinance NGO's Vision, Mission and Social, Financial and Governance Goals (VMSFGG)? Mandatory for all General Information Sheet 1.2 (b) Is twenty percent (20%) of the Board composed of member-clients of the Microfinance NGO who possess the necessary qualifications and none of the disqualifications? At least 1 for small mandatory for Large General Information Sheet 1.3 (a) Do the Microfinance NGO's Board Charter and Manual on Good Governance have a policy on training of trustees, particularly on its social, financial and governance goals? Mandatory for all Board Charter and Manual on Good Governance 1.3 (b) On having an orientation program for first-time trustees and relevant annual continuing training for all trustees and key officers? Mandatory for all Board Charter and Manual on Good Governance 1.4 Does the organization have a policy on board diversity, including social consciousness and gender diversity? Mandatory for all Board Charter and Manual on Good Governance 1.5 Is the organization's Board assisted in its duties by a Corporate Secretary, who annually attends relevant trainings, including those on good governance? Mandatory for all General Information Sheet 1.6 Is the organization's Board assisted in its duties by a Compliance Officer, who annually attends relevant trainings, including those on good governance? Mandatory for all General Information Sheet ESTABLISHING CLEAR ROLES AND RESPONSIBILITIES OF THE BOARD Principle 2: The fiduciary roles, responsibilities and accountabilities of the Board as provided under the law, the Microfinance NGO's articles and by-laws, and other legal pronouncements and guidelines, particularly those in relation to its social goals, objectives and activities, should be clearly made known to all trustees and key officers as well as to members and other stakeholders. 2.1 Does the organization's Board act on a fully informed basis, in good faith, with due diligence and care, and in the best interest of the Microfinance NGO and all its members and other stakeholders? Mandatory for all presumption of regularity 2.2 (a) Does the organization's Board oversee the development of and approve the Microfinance NGO's Vision, Mission, Social and Financial and Governance Goals (VMSFGG), focusing on the low income and marginalized sectors as target clientele? Mandatory for all reports 2.2 (b) Does the organization's Board regularly review the VMSFGG and monitor the implementation of the Goals, in order to sustain the organization's long-term viability? Mandatory for all reports 2.3 Does the Board ensure compliance with all applicable laws and their mechanisms, such as on the Magna Carta for Women and all environmental laws? Mandatory for all reports 2.4 Is the Board headed by a competent and qualified Chairperson? Mandatory for all CV of the Chairperson 2.5 (a) Has the Board been responsible for ensuring and adopting an effective succession planning program for trustees and management to ensure the Microfinance NGO's sustainability and continued assistance to its chosen sector/community? Mandatory for all Succession Planning Program 2.5 (b) Has the Board set up rules/guidelines in case of cessation of any trustee from the board? Mandatory for all By-Laws 2.6 (a) Does the Board align the remuneration of management with the nature, objectives and long term interests of the Microfinance NGO? Mandatory for all Payroll/Remuneration Policy 2.6 (b) The Board does not give its trustees any remuneration other than reasonable per diem . Mandatory for all Payroll/Remuneration Policy 2.7 (a) Does the Board disclose in its Manual on Corporate Governance a formal and transparent board nomination and election policy, which includes how it accepts and reviews nominated candidates? Mandatory for all Nomination and Election Policy 2.7 (b) Does the organization's nomination and election policy include an assessment of the effectiveness of the processes and procedures Nomination and Election Policy (i) in the nomination or election of a trustee? Mandatory for all Result of Assessment Based on the Policy (ii) in the replacement of a trustee? Mandatory for all Result of Assessment Based on the Policy 2.7 (c) Is the organization's process of identifying the quality of trustees aligned with its Vision, Mission and Social, Financial and Governance Goals (VMSFGG) and strategic direction? Mandatory for all Internal Policies and Board Minutes and Resolutions 2.8 Is the Board primarily responsible for approving (i) the selection of Key Management Officers? Mandatory for all Internal Policies and Board Minutes and Resolutions (ii) the assessment of Key Management Officers? Mandatory for all Internal Policies and Board Minutes and Resolutions 2.9 Does the Board oversee that an appropriate internal control system is in place, including setting up a policy and mechanism for monitoring and managing potential conflicts of interest in situations and transactions Mandatory for all Internal Policies (i) of Management? Mandatory for all Internal Policies (ii) of the Board of Trustees? Mandatory for all Internal Policies (iii) of members? Mandatory for all Internal Policies 2.10 (a) Does the Board oversee that a sound risk management framework is in place to effectively identify, monitor, assess and manage key risks? Mandatory for LARGE Risk Management Framework/Policy 2.10 (b) Does the risk management framework guide the Board in identifying the effectiveness of risk management strategies? Mandatory for LARGE Risk Management Framework/Policy 2.11 (a) Does the Board have a Board Charter that formalizes and clearly states its roles, responsibilities and accountabilities in carrying out its fiduciary duties, particularly in relation to social, financial and governance goals? Mandatory for all By-Laws Board Charter 2.11 (b) Does the Board Charter serve as a guide to the trustees in the Performance of their functions? Mandatory for all Minutes of the Meeting 2.11 (c) Is the Board Charter publicly available and posted on the Microfinance NGO's website, social media account of the MF-NGO or the website of the alliance/association to which it belongs? Mandatory for all Website/Social Media Account ESTABLISHING BOARD COMMITTEES Principle 3: Board committees should be set up to the extent possible to support the effective performance of the Board's functions, particularly with respect to audit, finance and risk and other key governance concerns, such as nomination and remuneration. The composition, functions and responsibilities of all committees established should be contained in a publicly available Committee Charter. 3.1 Does the Board establish board committees that focus on specific board functions to aid in the optimal performance of its roles and responsibilities? For a Microfinance NGO with relatively small and lean operations, does the board identify specific members of the Board who shall be responsible for specific board functions? Mandatory for all Board Charter and Manual on Good Governance 3.2 (a) Does the organization's Board have an Audit Committee to enhance its oversight capability over the organization's financial reporting, internal control system, internal and external audit processes, and compliance with applicable laws and regulations? Mandatory for all Committee Charter and Manual on Good Governance 3.2 (b) Is the Audit Committee composed of at least three (3) appropriately qualified non-executive trustees? Mandatory for all Committee Charter 3.2 (c) Does the Audit Committee have at least one member who (i) has relevant background in social welfare? Mandatory for all Committee Charter (ii) has relevant background, knowledge, skills, and/or experience in the areas of accounting, auditing and finance? Mandatory for all Committee Charter 3.3 (a) Does the organization's Board have a Governance Committee to assist the Board in the performance of its good governance responsibilities, including the functions of a Nomination and Remuneration Committee? Mandatory for LARGE Board Charter and Manual on Good Governance 3.3 (b) Is the Governance Committee composed of at least three (3) members? Mandatory for LARGE Committee Charter 3.3 (c) Does the organization's Compliance Office provide technical support to the Governance Committee? Mandatory for LARGE Committee Charter 3.4 (a) Does the organization's Board have a Finance and Risk Committee that is tasked with the continuing review of the financial affairs and determination and management of potential risks of the Microfinance NGO? Mandatory for LARGE Board Charter and Manual on Good Governance 3.4 (b) Is the Finance and Risk Committee composed of at least three (3) members? Mandatory for LARGE Committee Charter 3.4 (c) Does the Finance and Risk Committee have at least one member who (i) has relevant knowledge and experience in finance? Mandatory for LARGE Committee Charter (ii) has relevant knowledge and experience in risk management? Mandatory for LARGE Committee Charter 3.4 (d) Does the organization's Risk Officer provide technical support to the Risk and Finance Committee? Mandatory for LARGE Committee Charter 3.5 (a) Are all established Committees required to have Committee Charters stating in plain terms its purposes, memberships, structures, operations, reporting processes, resources and other relevant information? Mandatory for all Committee Charters 3.5 (b) Do the Charters provide the standards for evaluating the performance of the committees? Mandatory for all Committee Charters 3.5 (c) Are the Charters fully disclosed on the website, social media of the Microfinance NGO or the alliance/association to which it belongs? Mandatory for all Website/Social Media Account FOSTERING COMMITMENT Principle 4: To show full commitment to the organization, the trustees should devote the time and attention necessary to properly and effectively perform their duties and responsibilities, including sufficient time to be familiar with the Microfinance NGO's Vision, Mission and Social, Financial and Governance Goals. 4.1 (a) Do the trustees attend and actively participate (i) in all Board and Committees meetings Mandatory for all Corporate Secretary's Certificate on Attendance of the Board (ii) in all Annual/Special Membership meetings in person or through tele-/videoconferencing conducted in accordance with the rules and regulations of the Commission, except when justifiable causes, such as, illness, death in the immediate family and serious accidents, prevent them from doing so? Mandatory for all Corporate Secretary's Certificate on Attendance of the Board 4.1 (b) Do the trustees review meeting materials and if called for, ask the necessary questions or seek clarifications and explanations? Mandatory for all Minutes of the Meeting 4.2 Do trustees notify the Board where he/she is an incumbent trustee before accepting a trusteeship/directorship in another organization/company, particularly if there is a potential conflict of interest? Mandatory for all Disclosure Statement of the Board Member REINFORCING BOARD INDEPENDENCE Principle 5: The Board should endeavor to exercise an objective and independent judgment on all affairs of the Microfinance NGO. 5.1 (a) Do the Board's trustees serve for a maximum of three (3) terms of three (3) years each term, or a total of nine (9) cumulative years from the date of first appointment? Mandatory for all Minutes of the Annual Members Meeting/General Information Sheet 5.1 (b) Does the company provide for a minimum cooling-off period of one (1) year before a trustee can be reelected after serving a maximum of three (3) terms of three (3) years each term, or a total of nine (9) cumulative years from date of first appointment? Mandatory for all Policies/Board Charter 5.2 (a) Are the positions of Chairperson of the Board and Executive Director/General Manager/President held by separate individuals? Mandatory for all 5.2 (b) Do the Chairperson of the Board and Executive Director/General Manager/President each have clearly defined responsibilities? Mandatory for all 5.3 Does a trustee with a material interest in any transaction affecting the Mandatory NGO abstain from taking part in the deliberation/s for the same? Mandatory for all ASSESSING BOARD PERFORMANCE Principle 6: The best measure of the Board's effectiveness is through an assessment process. The Board should regularly carry out evaluations to appraise its performance as a body, and assess whether it possesses the right mix of backgrounds and competencies. 6.1 Does the Board conduct an annual assessment of (i) itself (Board) as a whole? Mandatory for all assessment results (ii) of the individual trustees? Mandatory for all assessment results (iii) of the committees? Mandatory for all assessment results 6.2 (a) Does the Board have in place a system that provides, at the minimum, criteria and process to determine the performance (i) of the Board? Mandatory for all Board Policy (ii) of the individual trustees? Mandatory for all Board Policy (iii) of the committees? Mandatory for all Board Policy 6.2 (b) Does the Board have in place a system that allows for a feedback mechanism from the members? Mandatory for all Board Policy STRENGTHENING BOARD ETHICS Principle 7: Members of the Board are duty-bound to apply high ethical standards, taking into account the interests of all members and other stakeholders. 7.1 (a) Does the Board adopt a Code of Conduct and Ethics, which provides standards for professional and ethical behavior, as well as articulate acceptable and unacceptable conduct and practices in internal and external dealings? Mandatory for all Code of Conduct and Ethics 7.1 (b) Is the Code properly disseminated (i) to the Board? Mandatory for all Company Policy (ii) to management and all employees? Mandatory for all 7.1 (c) Is the Code disclosed and made available to the public through the website, social media account of the organization or of the alliance/association to which it belongs? Mandatory for all Website/Social Media Account 7.2 (a) Does the Board ensure the proper and efficient implementation and monitoring of compliance (i) with the Code of Conduct and Ethics? Mandatory for all Minutes of the Meetings/Resolutions/Certification from Compliance Officer (ii) with internal policies? Mandatory for all DISCLOSURE AND TRANSPARENCY ENHANCING ORGANIZATION DISCLOSURE POLICIES AND PROCEDURES Principle 8: A Microfinance NGO should establish disclosure policies and procedures that are practical and in accordance with best practices and regulatory expectations. 8.1 Does the organization's Board establish disclosure policies and procedures to ensure a comprehensive, accurate, reliable and timely disclosure to its members and other stakeholders of the organization's financial condition, results and operations? Mandatory for all Disclosure Policy/Minutes of the AMM/Agenda of the AMM 8.2 (a) Does the organization accurately, efficiently and timely account and disclose all its transactions especially (i) on receipts of donations, grants, contributions? Mandatory for all Sworn Statement & AFS (ii) on loans made by the management on behalf of the organization? Mandatory for all Sworn Statement & AFS (iii) on the disbursement and/or investment of donations, grants, contributions and loans made by the management on behalf of the organization? Mandatory for all Sworn Statement & AFS 8.2 (b) Does the board practice fair presentation and preparation of its financial statements that are free from material misstatements? Mandatory for all Auditor's Report of the AFS 8.3 Does the Microfinance NGO fully disclose all relevant and material information on individual members of the Board of Trustees and key officers including disclosure of any family member working as a staff/volunteer in the organization? Mandatory for all Disclosure Policy/Non-financial Information/Notice of Member's Meeting (with background on Nominees to the Board) 8.4 (a) Does the Microfinance NGO disclose in its Manual on Good Governance its policies and procedures governing any actual or potential conflict of interest that involves (i) its trustees Mandatory for all Disclosure Policy/Conflict of Interest Policies/Manual on Good Governance (ii) its management Mandatory for all (iii) its employees Mandatory for all 8.4 (b) Does the Microfinance NGO disclose in its Manual on Good Governance its policies and procedures governing any actual or potential conflict of interest that involves (i) its partners Mandatory for all Disclosure Policy/Conflict of Interest Policies/Manual on Good Governance (ii) its donors Mandatory for all (iii) its clients Mandatory for all 8.5 Does the Microfinance NGO provide in its Manual on Good Governance clear disclosure of policies and procedures in setting (i) the per diem of its trustees Mandatory for all Policy Disclosure/Manual on Good Governance (ii) the remuneration of management taking into consideration the existing regulatory requirement on the level of all administrative expenses? Mandatory for all 8.6 (a) Does the Microfinance NGO clearly define and disclose its Microenterprise Development Programs and Services Microenterprise Development Plan (i) to the regulators? Mandatory for all Reports (ii) in its website, social media account or in the website of the alliance/association to which it belongs? For small Microfinance NGO, does the organization post its Microenterprise Development Programs and Services in public markets and other public places where the Microfinance clients are located? Mandatory for all Website/Social Media Account 8.7 Are the organization's governance policies, programs and procedures (i) contained in its Manual on Good Governance and submitted to regulators? Mandatory for all Manual on Good Governance (ii) posted on the organization's website, social media account or the website of the alliance/association to all which it belongs? Mandatory for all Website/Social Media Account INCREASING FOCUS ON NON-FINANCIAL AND SUSTAINABILITY REPORTING Principle 9: A Microfinance NGO should ensure that material and reportable non-financial and sustainability issues are disclosed. 9.1 Do the trustees have a clear and focused policy on the disclosure of non-financial information, with emphasis on the management of economic, environmental, social and governance (EESG) issues of its operations, which underpin sustainability? PROMOTING A COMPREHENSIVE AND COST-EFFICIENT ACCESS TO RELEVANT INFORMATION Principle 10: A Microfinance NGO should maintain a comprehensive and cost-efficient communication channel for disseminating relevant information. 10.1 For larger Microfinance NGOs, does the organization have a working and accessible website to ensure a comprehensive, cost-efficient, transparent and timely manner of disseminating relevant information to the public? For smaller Microfinance NGO, does the organization have a social media account to ensure a comprehensive, cost-efficient, transparent and timely manner of disseminating relevant information to the public? Mandatory for all Website/Social Media Account 10.2 Does the organization have a process that provides regular updates, advisories and all other relevant information to its members and all stakeholders? Mandatory for all Manual on Good Governance INTERNAL CONTROL SYSTEM AND RISK MANAGEMENT FRAMEWORK STRENGTHENING THE INTERNAL CONTROL SYSTEM AND RISK MANAGEMENT FRAMEWORK Principle 11: To ensure the integrity, transparency and proper governance in the conduct of its operation, a Microfinance NGO should have separate adequate and effective internal control and risk management systems. 11.1 Does the organization have a separate adequate and effective (i) internal control system Mandatory for all Internal Control Policy/Manual on Good Governance Risk Management Policy/Manual on Good Governance (ii) risk management system Mandatory for LARGE specifically designed to address its peculiar set up or structure, taking into account its size, risk profile and complexity of operations? 11.2 Does the organization have in place an (i) internal audit function Mandatory for all Internal Control/Audit Policy/Manual on Good Governance (ii) a risk management function mandatory for LARGE Internal Control/Audit Policy/Manual on Good Governance that provides independent and objective identification, assessment and monitoring of key risk exposures? CULTIVATING A SYNERGIC RELATIONSHIP WITH MEMBERS PROMOTING MEMBER RIGHTS Principle 12: A Microfinance NGO should treat all members fairly and equitably. It should recognize, facilitate the exercise of their rights. 12.1 Does the Board ensure that the basic rights of a member are disclosed (i) in the Manual of Good Governance? Mandatory for all Manual on Good Governance (ii) its website, social media account or the website of the alliance/association to which it belongs? Mandatory for all Website/Social Media Account 12.2 Does the Board send out and post on its website, social media account or on the website of the alliance/association to which it belongs, the Notice of Annual and Special Membership Meetings with sufficient and relevant information at least 21 calendar days before the meeting? Mandatory for all Website/Social Media Account 12.3 Does the Board make available the Minutes of Annual and Special Membership Meetings within ten (10) business days from the date of the meeting by posting it on its website, social media account or the website of the alliance/association which it belongs, or by posting it in any public place in the community? Mandatory for all Website/Social Media Account 12.4 (a) Does the Board make available, at the option of a member, an alternative dispute mechanism to resolve intra-corporate disputes in an amicable and effective manner? Mandatory for all Manual on Good Governance 12.4 (b) Is the alternative dispute mechanism included in the organization's Manual on Good Governance? Mandatory for all Manual on Good Governance DUTIES TO EXTERNAL STAKEHOLDERS RESPECTING RIGHTS OF STAKEHOLDERS AND EFFECTIVE REDRESS FOR VIOLATION OF STAKEHOLDERS' RIGHTS Principle 13: The rights of stakeholders established by law, by contractual relations and through voluntary commitments must be respected. Where stakeholders' rights and/or interests are at stake, stakeholders should have the opportunity to obtain prompt effective redress for the violation of their rights. 13.1 (a) Does the Board identify the organization's various stakeholders? Mandatory for all List of Stakeholders/Strategic Plan 13.1 (b) Does the Board promote cooperation between the organization's stakeholders and the Microfinance NGO in carrying out its Vision, Mission and Social, Financial and Governance Goals, and in promoting social welfare and sustainability? Mandatory for all Memorandum of Agreement/Loans Agreement with Creditors/Donors/Community 13.2 Does the Board establish clear policies and programs to provide a mechanism on the fair treatment and protection of stakeholders? Mandatory for all Stakeholder Policies/Manual on Good Governance 13.3 Does the Board adopt a transparent framework and process that allow stakeholders Mandatory for all Stakeholder Policies/Manual on Good Governance (i) to communicate with the Microfinance NGO? (ii) to obtain redress for the violation of their rights? ENCOURAGING STAKEHOLDERS' PARTICIPATION Principle 14: A mechanism for participation of various stakeholders should be developed to create a symbiotic environment with them in realizing the Microfinance NGO's Vision, Mission and Social, Financial and Governance Goals. 14.1 Does the Microfinance NGO endeavor to create a good reputation by establishing policies, programs and procedures consistent with its Vision, Mission, and Social, Financial and Governance Goals (VMSFGG) and applicable laws to encourage donors and volunteers to contribute their resources, network, time and industry for the realization of the organization's VMSFGG and to ensure sustainability of the organization? Mandatory for all Stakeholder Policies/Manual on Good Governance 14.2 Does the Microfinance NGO enter into a collaboration with a corporation or for profit entity only when it would be advantageous to the organization's Vision, Mission and Social, Financial and Governance Goals? Mandatory for all MOA/Stakeholder Policies/Manual on Good Governance 14.3 Is the organization accountable to its donors, project partners and local communities it serves? Mandatory for all MOA/Stakeholder Policies/Manual on Good Governance 14.4 Does the organization consistently communicate and cooperate with the government and intergovernmental agencies? Mandatory for all Attendance on Meetings/Stakeholder Policies/Manual on Good Governance TOTAL NO. OF POINTs (Raw Score) Scorecard for Performance Standards Full Points (1) Raw Score (2) Percentage Rating (3) = (2)/(1) Weight (4) Composite Score [(3) * (4)] * 100 GOVERNANCE .30 Large MF-NGOs 109 Small MF NGO 98 FINANCIAL 100 .40 SOCIAL 30 .30 FINAL RATING Footnotes 1. MF-NGOs may use the provisions under the Barangay Micro Business Enterprises Law to avail of the tax benefits during its first year of operations. MFI NGOs shall be encouraged to apply for accreditation on their 2nd year of operation. 2. Operating Costs refer to the following: all expenses incurred by the branch offices plus seventy percent of the total costs incurred by the head office on the following expense items: 3. Adjusted Expenses = Total Operating Expense + [(Average Equity - Average Fixed Assets) x Inflation Rate] + [(Market Interest Rate x Average Total Liabilities) - Actual Interest Expense] + Other Implicit Costs. Other Implicit Costs include those costs relevant to the conduct of its business such as grants, rent free building, donor paid technical advisor, or other subsidized expenses. 4. Active Microfinance clients refer to clients with outstanding microsavings and/or micro loans. n Note from the Publisher: Copied verbatim from the official copy. Duplication of No. 1.